Argentina Sticks It to the Empire—Again; Offers Bondholders New Debt Swap Under Argentine Law

August 21st, 2014 • 9:29 AM

In yet another bold assertion of national sovereignty, Argentine President Cristina Fernandez de Kirchner announced in a televised address, Tuesday night, that she had submitted a bill to Congress, offering foreign bondholders the option to accept a voluntary debt swap that would be governed by Argentine, rather than U.S. law, and would also designate the state-owned Banco de La Nacion as the new trustee bank, replacing Bank of New York-Mellon (BoNY). The bill is entitled "Local Sovereign Debt Payment of the Argentine Republic's Foreign Debt."

Wall Street and London media sewers and speculators are going nuts, howling that the proposed swap is crazy and is just another Argentine stunt to "get around" Federal Judge Thomas Griesa's rulings blocking $539 million in payments to restructured bondholders, and flout "the law." Bondholders are likely to reject it, they predict.

Don't be so sure. As Finance Minister Axel Kiciloff indicated Wednesday, the announced legislation has been elaborated "with great care," and is clearly an option that has been in the works for some time. There is nothing "compulsive" about it, he said. Rather than a change of jurisdiction, he explained, it is a new "modality" to ensure that Argentina can continue to comply with its foreign debt obligations, just as it has done since 2005.

President Fernandez emphasized that this is a completely voluntary swap, and that the bill authorizing it would be debated in Congress as mandated by the Constitution. But she added, Argentina has had enough. It refuses, "as any other country would refuse, to be extorted." The rulings by Judge Griesa have obstructed payments to legitimate bondholders who participated in the 2005 and 2010 restructuring. So now the government has decided to act to guarantee fair treatment for 100% of bondholders, and allow them to collect the funds they are owed.

Should the vultures wish to participate in this new swap on the same terms as other restructured bondholders, they are welcome to do so Fernandez said. As a good-faith measure, she added, the new bill calls for depositing in a special account for holdouts at the Central Bank, the amount of money they would have received had they participated in the original restructuring.

In her speech, the Argentine President emphasized that her nation's debt had not been paid "with the hunger of our people;" rather, while paying debt, the government had fostered economic development and social inclusion, policies "lacking in many parts of the world" today. The widespread international support Argentina has received, she stated, shows there is "a new global order" which prioritizes economic and human development.

President Fernandez also underscored that she is taking this action, not for her government, "but for future governments, and for future generations; because if I signed what some want me to, the bomb wouldn't explode now. On the contrary, there would surely be applause, and you'd see marvelous headlines, and then someone would surely come to lend us money again... and we'd find ourselves again in that infernal debt spiral that has for so long completely subjugated us." It has been an honor, she said in her capacity as President "of all Argentines," to work to lighten the nation's debt load, while ensuring jobs and dignity for all. "I feel this is a commitment which exceeds the merely conjunctural, the merely momentary, and enters decidedly into the realm of the historic."